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House Problems
Houses can have lots of problems If the yard looks trashy and overgrown, you know how to pick up trash and mow. If the walls look drab and shabby from years of abuse and neglect, you know how to replace new paneling or repair holes with mud. (If not, you can get a quick lesson at your neighborhood Home Depot or Loew's.) But zilch experience is necessary for slinging a paintbrush (unless you are just sloppy). I’m going to assume that you can do the simple things we call “cosmetics” in fixing up a house. You can usually find houses that really only need some yard work and a few gallons of paint. But these houses tend to be far from bargain-priced. The truth is that most people don’t even sweep the floor when they move from a house. And often after the move, the house they leave behind may be a wreck. Sometimes you stumble onto a jewel by discovering a house where mom was an excellent housekeeper and the family moved out in a rush, and all that’s necessary is minor cleanup of the premises to prepare for selling. Some investors only look for these houses. You will occasionally find these properties that only need minor cosmetic makeovers, but availability on the marketplace may not be common because listing realtors usually snap them up and these houses are not typically bargain-priced. You generally buy one of these houses only because you find it first. The principle that guides the shrewd investor is: the deeper the discount, You must “buy right” in order to “sell right.” The difference, less your fix-up cost, is your profit. So you must develop judgmental skill in determining what problems need to be addressed with your prospective purchase. Cosmetic problems are easy to remedy. Serious problems
More frequently, the house you inspect will represent cosmetic challenges AND other more serious problems. And
sometimes the problems are very serious.
I inspected a house recently that had foundation problems. Serious foundation problems. I first noticed that the entrance steps had broken brick due to shifting of the house on its foundation. As I walked around the inside of the house, I saw that the sheet rock had cracked in several places on the level above the entrance steps. What was obvious to me was obvious to every other buyer who had seen the house, which explains why the property had been on the market for over 200 days. So as this red flag went up about the foundation problem, my curiosity was also raised about the cost of repair. I know nothing about foundation problems, and I would never tackle such a problem on my own. But I knew there were area specialists in foundation repair. So, I got a couple of estimates before deciding if the purchase price was fair. If you are willing to go beyond what the average investor or buyer will do to correct serious problems, you can sometimes find a good deal. Foundation problems represent such a serious aversion to a sale that I knew the house would never sell to anyone until someone grabbed the bull by the horns while grabbing a bargain. I saw this house was a possible opportunity, but I had to do the homework. Mold!!! One of the most serious problems in buying any house today is mold contamination. This is a recent problem that we never experienced in the past, at least with such prevalence. Let me warn you: repairing a mold-infested house can cost you big bucks. Even in excess of $100,000! An infested house must first be tested by a certified lab to ascertain the extent of damage. A third-party contractor usually takes responsibility for repair. Then the testing lab must re-evaluate the premises after repair to confirm the toxicity levels have been reduced to acceptable standards. Then, and only then, can you re-enter to make modifications or paint. You are in a heap ‘o trouble, boy, if you buy a house WITH MOLD, unknowingly or knowingly, and if you fail to remedy the problem or try to sell without disclosure. Just write it off as a bad experience and bad investment if you buy without taking remedial costs into consideration. This warning doesn’t mean you should not buy any house with mold infestation. You can obtain firm bids (not estimates) for repair on some situations. However, damage can be so severe and widespread that even mold-removal firms will not even quote a firm bid! Factor the remedial repair into the buying price and the selling price. Be prepared, however, that it just won’t work in some cases. Mold is damaging to health. Some people are more sensitive to mold than others. Mold replaced the asbestos scare of the '70s and '80s when Texas homeowners sued insurance companies for millions over mold damage. The mold problem has migrated from the South and is moving into northern states. Many Alabama insurance companies went out of business because of the problem, and those insurers left usually refuse to insure any house with mold history. Don’t let mold catch you with your pants down! Most houses have some kind of problem or problems. Learn to distinguish between the cosmetic and serious problems, and recognize that solutions are usually available for either. You, the investor, must become a problem-solver. Dr.Phil Speer |